My father deeded his house to me when I was nine years old. The recorded amount of the "sale" was $0.00. I do not live in this house -- I live clear across the country. If I ever wanted to sell it, would I have to pay capital gains tax on the entire amount, since my purchase amount was $0 and I have not lived in it?

lagomorph said:My father deeded his house to me when I was nine years old. The recorded amount of the "sale" was $0.00. I do not live in this house -- I live clear across the country. If I ever wanted to sell it, would I have to pay capital gains tax on the entire amount, since my purchase amount was $0 and I have not lived in it?your dad have tax problems?

My understanding ( and I am not a tax accountant which is who you really should be asking this question) is that he should have paid gift tax ( assuming there was one in place at the time) at the time he deeded the house to you based on the price paid for the house and any improvements. Your basis is that amount and you should be paying capital gains on whatever the house is sold for above that basis. You would get no exclusion if have not lived in the house for 2 of the last 5 years.

also see: Link

mybuds said:Usually, the donee's basis is the same as donor's basis. In otherwords, your basis is his basis. You will have to pay capital gains tax on the difference between the price he paid for the house, and the price you sell it for. Since you have not lived in the house, you cannot take advantage of the Section 121 exclusion.

I believe if your father is still alive, there may be a way to avoid paying tax on the gain. Gift it back to him, hope he lives a little while longer, and hope he gives it back to you at his death. You will get a stepped up basis of the FMV of the house, and therefore have no capital gains if you sell it before it appreciates more.

That would be a great solution, if only a) he still lived in it (hasn't for years); and b) we were still in touch (haven't spoken to each other since I was 11 or 12).

I don't even know how to find out how much he bought it for back in the early seventies, or if he paid gift tax on it.

lagomorph said:
I don't even know how to find out how much he bought it for back in the early seventies, or if he paid gift tax on it.

The tax code answers all your questions. It is hard to read, but not impossible.

If the property was acquired by gift after December 31, 1920, the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift [increased by the amount of gift tax paid with respect to such gift]....If the facts necessary to determine the basis in the hands of the donor or the last preceding owner are unknown to the donee, the Secretary shall, if possible, obtain such facts from such donor or last preceding owner, or any other person cognizant thereof. If the Secretary finds it impossible to obtain such facts, the basis in the hands of such donor or last preceding owner shall be the fair market value of such property as found by the Secretary as of the date or approximate date at which, according to the best information that the Secretary is able to obtain, such property was acquired by such donor or last preceding owner. 26 USC 1015

mybuds said:lagomorph said:
I don't even know how to find out how much he bought it for back in the early seventies, or if he paid gift tax on it.

The tax code answers all your questions. It is hard to read, but not impossible.

If the property was acquired by gift after December 31, 1920, the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift [increased by the amount of gift tax paid with respect to such gift]....If the facts necessary to determine the basis in the hands of the donor or the last preceding owner are unknown to the donee, the Secretary shall, if possible, obtain such facts from such donor or last preceding owner, or any other person cognizant thereof. If the Secretary finds it impossible to obtain such facts, the basis in the hands of such donor or last preceding owner shall be the fair market value of such property as found by the Secretary as of the date or approximate date at which, according to the best information that the Secretary is able to obtain, such property was acquired by such donor or last preceding owner. 26 USC 1015

Thank you.

dimatkach said:lagomorph said:
he's an attorney and wanted to make sure if anything bad ever happened, that they couldn't get the house.

...

haven't spoken to each other since I was 11 or 12).
...
My father has been paying the property taxes every year.



It sounds like your father never meant for you to actually own this house. Just gift it back to him.
Besides the great feeling from doing the right thing, it'll also rid you of your tax headaches. And there is still a chance you'll get it eventually anyway, as someone described above, only it'll be tax free, and "smell" better.
But doing that will chew up a goodly portion of his lifetime gift tax exemption AND his estate tax exemption. No big deal if he never wants to give a large gift to his own children and he plans to die broke.

But going back to basics, if the father retained control of the house and continued to use it, there is a question of whether this actually constituted a completed gift for tax purposes.

Lagomorph, don't be an idiot. In a matter concerning hundreds of thousands of dollars, only a consumate fool would rely on anonymous strangers to give them advice over the internet. Fork over a couple hundred bucks to consult with a tax pro about this matter. Do it now and it could save you thousands. Wait until the house is sold (or otherwise disposed of) or one of you dies and there will nothing anyone can do to save you.

I find it odd that your father, who you are not speaking to, is paying the property taxes on "your" house. I imagine that if you were to ask him, or try to sell the house, your father would tell you that you only "wink, wink, nudge, nudge" own the house and that in his mind he still owns it. And that if you attempted to sell it, he would block you and claim ownership.

Rajjeq said:I find it odd that your father, who you are not speaking to, is paying the property taxes on "your" house. I imagine that if you were to ask him, or try to sell the house, your father would tell you that you only "wink, wink, nudge, nudge" own the house and that in his mind he still owns it. And that if you attempted to sell it, he would block you and claim ownership.

If what OP says is accurate, the real estate records reflect that he is the owner. However, OP, you should probably get a copy of the relevant deed from the county recorder's office so that you understand what the details of the conveyance are. It could be that your father retains a life estate, or maybe he didn't retain anything.

Just to emphasize what others have said, you really need to consult with an attorney on this. You may want to discuss the matter with your father, even if you haven't spoken with him in years, unless you think he'll try to undo the transfer against your will. It all depends on what your intentions are. If you plan to do nothing about this property until he passes away, then perhaps it's just worth waiting it out. If you plan to sell it or occupy it, you have to deal with your father, who currently occupies it. Whatever it is you do, consult an attorney and be careful about it. You're talking about tens or hundreds of thousands here... a few hundred or thousand bucks in attorneys' fees are a small price to pay.

OK, sorry I didn't provide enough details.

1. My father does not live in this house, though he is still alive.

2. The house is in my name. They send the property tax addressed to me (at the house where is is living) and he pays them.

3. I do not plan to sell the house while he is still alive -- or do anything at all with it while he is still alive. I'm just thinking about what I'll eventually have to deal with.

4. I am his only child. It wouldn't go to anyone else whether or not it was in my name. It was always understood that it would be mine when I grew up. I think the idea was that a) no one could take it away from him and b) I wouldn't have to pay estate taxes on it or go through probate or whatever.

Thank you for all the feedback. Of course I will consult a tax professional when it becomes necessary. At this point, it's all purely theoretical.